BREAKINGVIEWS-Intel’s disappointing disposal is its easiest deal

By Robert Cyran

NEW YORK, April 14 (Reuters Breakingviews) - Intel’s INTC.O easiest deal is distinctly unsatisfying. The struggling semiconductor group on Monday said it was selling control of Altera, its programmable chip unit, to private equity firm Silver Lake at a valuation of nearly $9 billion. That’s about half the price Intel put on the business a decade ago. Sure, the transaction brings in some cash and makes the $90 billion company simpler to manage. Yet new boss Lip-Bu Tan is still trapped in a capital-intensive race with the much larger Taiwan Semiconductor Manufacturing. Further disposals will also be harder.

The transaction encapsulates Intel’s failing. Back in 2015 it paid nearly $17 billion for Altera - roughly 50% over the company’s market value at the time – in the hope of reaping revenue synergies from selling more chips and producing them in Intel’s own factories. Manufacturing woes and Intel’s declining market share in data centers meant Altera shrank. Intel had hoped to recoup its original investment. It’s now selling a 51% stake in a deal that values the business at just six times 2024 revenue, half the multiple investors attach to rival Lattice Semiconductor.

A simpler Intel and extra cash will help Tan, whose plan to revitalize Intel resembles that of his predecessor Pat Gelsinger, but with added vigor. The company needs to improve manufacturing, produce additional chips for other companies and regain its edge in designing semiconductors for data centers and personal computers. Selling more shares in listed self-driving technology firm Mobileye Global, in which Intel owns a $9 billion stake, would be a sensible next step to raise capital. Further deals, however, would probably mean disposing of useful parts of Intel’s troubled chip design and manufacturing businesses.

Yet returns in semiconductor manufacturing are linked to scale. Any serious competitor must be willing to invest gigantic sums to stay on the bleeding edge of technology. Intel will spend around $20 billion annually on capital expenditure over the next few years according to analysts’ estimates collected by LSEG. That’s only about half as much as TSMC. Disappointing disposals will not raise the cash Intel needs to compete.

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CONTEXT NEWS

Intel said on April 14 it had agreed to sell a 51% stake in Altera to buyout firm Silver Lake in a deal that values the programmable chip business at $8.75 billion. In 2024, Altera had revenue of $1.54 billion and an operating loss of $615 million.

Intel bought Altera for nearly $17 billion in 2015. On March 12, Intel appointed Lip-Bu Tan chief executive.

Intel shares were up 6.5% at $21.03 by 1500 GMT on April 14.